INTERGROUP DISCUSSION ON SOLUTIONS FOR SHIP RECYCLING

2. Good afternoon, and thank you for attending this meeting. I am speaking today on behalf of the Industry Working Group on Ship Recycling, which brings together a number of shipowners� organisations, the classification societies (IACS) and, importantly, the seafarers� unions (ITF).I should stress that this is an international group, and I cannot claim to be speaking specifically on behalf of European interests. As we know, this is a difficult subject, and the focus today is on solutions. But to talk about solutions one has to know what one is trying to solve, and I hope you will bear with me if I start with a few simple facts. To avoid unnecessary controversy, I have tried to ensure they are indeed facts, and not opinions. Good afternoon, and thank you for attending this meeting. I am speaking today on behalf of the Industry Working Group on Ship Recycling, which brings together a number of shipowners� organisations, the classification societies (IACS) and, importantly, the seafarers� unions (ITF).

3. First, whether this is a popular comment or not, it needs to be understood that Shipbuilding, Shipping and Ship Recycling, though of course interdependent, have always been regarded as three quite separate and distinct industries. Very few shipping companies have any financial involvement in either shipbuilding yards or in recycling yards. Rightly or wrongly, until eight or ten years ago the great majority of people in the shipping industry only had the dimmest knowledge of the shipbreaking business, which was not part of their experience and not on their radar screen. That may not be a sustainable position for the future, and attitudes are changing, but perceptions do not change overnight. First, whether this is a popular comment or not, it needs to be understood that Shipbuilding, Shipping and Ship Recycling, though of course interdependent, have always been regarded as three quite separate and distinct industries. Very few shipping companies have any financial involvement in either shipbuilding yards or in recycling yards. Rightly or wrongly, until eight or ten years ago the great majority of people in the shipping industry only had the dimmest knowledge of the shipbreaking business, which was not part of their experience and not on their radar screen. That may not be a sustainable position for the future, and attitudes are changing, but perceptions do not change overnight.

4. Second, some simple statistics. There are almost 50,000 ships of ocean-going size in the world. Recycling activity is market driven, and all the recycling yards are starved of work at the moment because the excellent freight rates make it profitable for ships to remain in service.However, if we assume an average ship life of 25 years, that implies the need for up to 2000 vessels to be withdrawn for demolition each year. In reality about half that number will be small ships disposed of locally, but an average of maybe 1000 larger ships a year will need to be recycled for the foreseeable future. As a consequence of regulation up to 1,000 single hull tankers alone will need to be withdrawn from service by 2010. Short of scuttling these ships at sea or tying them up in fjords to rust away like the US �ghost fleet� � neither an acceptable proposition � we have to assume that they will be dismantled ashore. Second, some simple statistics. There are almost 50,000 ships of ocean-going size in the world. Recycling activity is market driven, and all the recycling yards are starved of work at the moment because the excellent freight rates make it profitable for ships to remain in service.

5. Third, there is very limited ship demolition activity today in the industrialised world � and, with a handful of notable exceptions, very little interest in providing it in a significant way. Even when steps are taken to provide sound recycling facilities, local politics tend to frustrate the efforts. For instance, I understand that the planning permission which Able UK has been seeking in Hartlepool in NE�England since 2003 has still not been obtained. On the plus side China does have some recycling facilities, with the potential for more, and the standards of operation can be high. Likewise Turkey has acceptable recycling facilities. However, as things stand today more than 80% of the world�s recycling capacity is in South Asia � Bangladesh, India and Pakistan.So for the foreseeable future these three countries provide an essential resource for disposing of ships at the end of their economic life. Third, there is very limited ship demolition activity today in the industrialised world � and, with a handful of notable exceptions, very little interest in providing it in a significant way. Even when steps are taken to provide sound recycling facilities, local politics tend to frustrate the efforts. For instance, I understand that the planning permission which Able UK has been seeking in Hartlepool in NE�England since 2003 has still not been obtained. On the plus side China does have some recycling facilities, with the potential for more, and the standards of operation can be high. Likewise Turkey has acceptable recycling facilities. However, as things stand today more than 80% of the world�s recycling capacity is in South Asia � Bangladesh, India and Pakistan.

6. Fourth, while the shipping industry has never been able to accept the argument that a ship under its own power can be �waste�, there is no question that a life-expired ship has potentially hazardous materials on board, both in its construction and as part of its operational needs. For example, until some years ago asbestos was a standard building material in ships, and while it is a diminishing problem, most ships being withdrawn today date from a period when asbestos was still an accepted fire-retarding medium for ships. It is sometimes therefore suggested that ships should be stripped of all their potentially hazardous materials in the industrialised world. However, it has to be understood that a decommissioned ship cannot sail under its own power, and while decommissioning and towing is theoretically feasible on a limited basis, there simply are not enough ocean-going tugs to make this a realistic proposition for the generality of ships requiring recycling. Furthermore, towing a dead ship is in any event a difficult and hazardous activity, and certainly not one that should be lightly undertaken. In addition, even a decommissioned ship will require some hazardous or polluting materials to be retained on board even on a towed voyage. The concept of removing all potentially hazardous materials prior to towing is simply not achievable, and decommissioning and towing should not be thought of as other than an exceptional solution.Fourth, while the shipping industry has never been able to accept the argument that a ship under its own power can be �waste�, there is no question that a life-expired ship has potentially hazardous materials on board, both in its construction and as part of its operational needs. For example, until some years ago asbestos was a standard building material in ships, and while it is a diminishing problem, most ships being withdrawn today date from a period when asbestos was still an accepted fire-retarding medium for ships. It is sometimes therefore suggested that ships should be stripped of all their potentially hazardous materials in the industrialised world. However, it has to be understood that a decommissioned ship cannot sail under its own power, and while decommissioning and towing is theoretically feasible on a limited basis, there simply are not enough ocean-going tugs to make this a realistic proposition for the generality of ships requiring recycling. Furthermore, towing a dead ship is in any event a difficult and hazardous activity, and certainly not one that should be lightly undertaken. In addition, even a decommissioned ship will require some hazardous or polluting materials to be retained on board even on a towed voyage. The concept of removing all potentially hazardous materials prior to towing is simply not achievable, and decommissioning and towing should not be thought of as other than an exceptional solution.

7. Fifth, cheap labour costs are of course a factor in the recycling of ships in the Indian Sub-Continent. But the principal economic driver for locating the yards in South Asia is not cheap labour but the local demand for recycled steel. For instance, Taiwan gave up ship recycling two decades ago when the domestic demand for recycled steel dried up. Conversely, in Bangladesh 90% of its domestic steel requirement reportedly comes from ship scrapping. India and Pakistan derive a substantial part of their steel from recycling ships. There is genuine local demand for the basic raw material.  Fifth, cheap labour costs are of course a factor in the recycling of ships in the Indian Sub-Continent. But the principal economic driver for locating the yards in South Asia is not cheap labour but the local demand for recycled steel. For instance, Taiwan gave up ship recycling two decades ago when the domestic demand for recycled steel dried up. Conversely, in Bangladesh 90% of its domestic steel requirement reportedly comes from ship scrapping. India and Pakistan derive a substantial part of their steel from recycling ships. There is genuine local demand for the basic raw material.

8. Finally unlike in many other industries, scrapping a ship is a significant source of revenue for a shipowner, the economics being determined by the strength of the freight market and the demand for recycled steel.In today�s high freight market a shipbreaker may pay $7 million for a Capesize bulk carrier (i.e. a rather large bulk carrier), such is the shortage of ships and the demand for steel. (Such a ship, incidentally, will contain some 10,000 tons of steel.)Ship recycling thus plays a real part in the economics of the international shipping industry. Furthermore, the South Asian yards not only have the capacity, but also traditionally pay more than the Chinese or Turkish yards.

9. However, let me make it clear: nobody can question the fact that the conditions in these recycling yards are unacceptable, both in terms of personnel health and safety and in terms of environmental quality. We could show our own photographs, but those in this exhibition will certainly dispel any doubts on that score. The yards must be brought up to a standard that would be regarded as internationally acceptable.

10. At the same time we have to recognise that: the South Asian yards do offer a genuine recycling capability, in the sense that virtually everything from the ship is reused (including, whether we like it or not, sheet asbestos);  they do offer substantial employment opportunities, direct or indirect, for many thousands of the region�s most disadvantaged people ( I have seen a figure of 750,000 quoted); and  they do provide real and tangible benefit to the local economies of poor areas. At the same time we have to recognise that: the South Asian yards do offer a genuine recycling capability, in the sense that virtually everything from the ship is reused (including, whether we like it or not, sheet asbestos); they do offer substantial employment opportunities, direct or indirect, for many thousands of the region�s most disadvantaged people ( I have seen a figure of 750,000 quoted); and they do provide real and tangible benefit to the local economies of poor areas.

11. Three Pillars of Sustainability If one wants to look at it in terms of the three pillars of sustainable development, the yards in South Asia signally fail any environmental test (except in terms of the principle of recycling), they substantially fail the social test (except in terms of job creation), but they very clearly succeed on the economic test. This latter point must not be forgotten. If one wants to look at it in terms of the three pillars of sustainable development, the yards in South Asia signally fail any environmental test (except in terms of the principle of recycling), they substantially fail the social test (except in terms of job creation), but they very clearly succeed on the economic test. This latter point must not be forgotten.

12. So what are the principal conclusions that we draw from this simple analysis? First, that the industry needs recycling facilities, for without them we will create our own �ghost ships� situation. Secondly, that without the yards in Bangladesh, India and Pakistan there will be insufficient demolition yard capacity in the foreseeable future.In other words, we have a system that works, but unacceptable conditions in the principal yards that allow the system to work. So what are the principal conclusions that we draw from this simple analysis? First, that the industry needs recycling facilities, for without them we will create our own �ghost ships� situation. Secondly, that without the yards in Bangladesh, India and Pakistan there will be insufficient demolition yard capacity in the foreseeable future.

13. So what is to be done?Let me offer some thoughts as to the way ahead. So what is to be done?

14. There are four areas we believe we must concentrate on, and I will deal with each one briefly. There are four areas we believe we must concentrate on, and I will deal with each one briefly.

15. The industry developed guidelines on recycling at the beginning of the decade, concentrating, for instance, on the clear obligation on the shipowner to provide the recycling yards with details of the potentially hazardous materials on board. These guidelines were adopted by IMO as inter-governmental guidelines. But guidelines are not enough, and now Norway has come forward with a draft of a mandatory IMO instrument, and work is already underway. The industry strongly supports this initiative. We need international regulation, and while there have been some differences of approach between governments, we need an instrument which is addressed to the industry, to flag states and to ship recycling states, because we need commitment from all three parties. We need an internationally-agreed benchmark which recognises the requirement for disposal of life-expired ships, sets clear obligations on shipowners to provide details of potentially hazardous materials on their ships, and establishes minimum standards for the recycling yards in terms of health and safety provisions and the management of hazardous materials. The industry developed guidelines on recycling at the beginning of the decade, concentrating, for instance, on the clear obligation on the shipowner to provide the recycling yards with details of the potentially hazardous materials on board. These guidelines were adopted by IMO as inter-governmental guidelines. But guidelines are not enough, and now Norway has come forward with a draft of a mandatory IMO instrument, and work is already underway. The industry strongly supports this initiative. We need international regulation, and while there have been some differences of approach between governments, we need an instrument which is addressed to the industry, to flag states and to ship recycling states, because we need commitment from all three parties. We need an internationally-agreed benchmark which recognises the requirement for disposal of life-expired ships, sets clear obligations on shipowners to provide details of potentially hazardous materials on their ships, and establishes minimum standards for the recycling yards in terms of health and safety provisions and the management of hazardous materials.

16. While I do not have time to deal with the IMO Convention in detail, here are the main elements.First, for the ship, dealing with design and construction, the hazardous materials on board, and the preparations for recycling. While I do not have time to deal with the IMO Convention in detail, here are the main elements.

17. Second, for the recycling facilities, so that they establish a clear management plan that provides for safe removal of hazardous materials, with effective exercise of control. There is also a section under discussion on reporting requirements. Second, for the recycling facilities, so that they establish a clear management plan that provides for safe removal of hazardous materials, with effective exercise of control. There is also a section under discussion on reporting requirements.

18. For an international instrument to be effective, we have to encourage improvements in the yards to standards that would be acceptable in the industrialised world. This requires a commitment in particular from the Governments of Bangladesh, India and Pakistan. We believe we are starting to see this now, and if the unhappy episode of the �Clemenceau� brought any benefit to anyone it was in the stated willingness of the Indian Government to engage fully in the process. Equally, improvements in the yards require a commitment from the industry to ensure that discussions with the recycling states are taken forward in a productive manner. Owners have to be responsible for maintaining an effective inventory of the materials on board � a �green passport�; they have to ensure that their ships are gas free on arrival; they should encourage the use of the standard demolition contract produced by BIMCO. And the yards must insist that these provisions are met. And flag states must be prepared to enforce the measures to be made mandatory for their ships, on an international basis. But realistically, I suggest, it will also require a commitment from other states to assist in the process, particularly in terms of transfer of technology to the recycling states. Is this not an area where the EU, or individual Member States, could have much greater impact than they have today? tFor an international instrument to be effective, we have to encourage improvements in the yards to standards that would be acceptable in the industrialised world. This requires a commitment in particular from the Governments of Bangladesh, India and Pakistan. We believe we are starting to see this now, and if the unhappy episode of the �Clemenceau� brought any benefit to anyone it was in the stated willingness of the Indian Government to engage fully in the process. Equally, improvements in the yards require a commitment from the industry to ensure that discussions with the recycling states are taken forward in a productive manner. Owners have to be responsible for maintaining an effective inventory of the materials on board � a �green passport�; they have to ensure that their ships are gas free on arrival; they should encourage the use of the standard demolition contract produced by BIMCO. And the yards must insist that these provisions are met. And flag states must be prepared to enforce the measures to be made mandatory for their ships, on an international basis. But realistically, I suggest, it will also require a commitment from other states to assist in the process, particularly in terms of transfer of technology to the recycling states. Is this not an area where the EU, or individual Member States, could have much greater impact than they have today? t

19. But the industry needs assistance too. At present there is no accepted international standard for recycling yards. The industry badly needs a list of approved yards to be developed, based on ILO standards on personnel health and safety, the Basel Convention on the treatment of hazardous materials and the future IMO convention on licensing arrangements. The industry bodies need a basis on which to encourage demolition in the more acceptable facilities. We need the support of governments to make this a reality. They must be prepared to approve and license authorised yards. Only then is it realistic to require that ships are only sent to approved yards. . But the industry needs assistance too. At present there is no accepted international standard for recycling yards. The industry badly needs a list of approved yards to be developed, based on ILO standards on personnel health and safety, the Basel Convention on the treatment of hazardous materials and the future IMO convention on licensing arrangements. The industry bodies need a basis on which to encourage demolition in the more acceptable facilities. We need the support of governments to make this a reality. They must be prepared to approve and license authorised yards. Only then is it realistic to require that ships are only sent to approved yards. .

20. We are also talking to the shipbuilding industry about designing ships with final disposal in mind. Ships are now starting to be delivered with a �green passport� listing the potential hazardous materials in their construction, but we need a standard format. And more generally, we have to stimulate the builders to think about disposal 25 years ahead. This has never been the case in the past, and it has to be in the future. We are also talking to the shipbuilding industry about designing ships with final disposal in mind. Ships are now starting to be delivered with a �green passport� listing the potential hazardous materials in their construction, but we need a standard format. And more generally, we have to stimulate the builders to think about disposal 25 years ahead. This has never been the case in the past, and it has to be in the future.

21. So in summary, we have to recognise that while conditions in the recycling yards in Bangladesh, India and Pakistan are unacceptable today, capacity for the disposal of ships ashore elsewhere is limited. We must also recognise that they provide a genuine recycling capability and an economic lifeline for the local communities. We therefore have to concentrate our efforts on encouraging and effecting real improvements in the conditions in the yards. We have to work towards a practical and enforceable IMO Convention, acceptable to recycling states as well as flag states, and in the meantime we have to continue to promote the IMO guidelines. We need approval of recycling yards and a requirement that only approved yards are used. We need a ship recycling industry which meets all the three pillars of sustainability in an acceptable way. Thank you for your attention and for your understanding.So in summary, we have to recognise that while conditions in the recycling yards in Bangladesh, India and Pakistan are unacceptable today, capacity for the disposal of ships ashore elsewhere is limited. We must also recognise that they provide a genuine recycling capability and an economic lifeline for the local communities. We therefore have to concentrate our efforts on encouraging and effecting real improvements in the conditions in the yards.